If we truly are paying more tax than the Swiss, isn't it time for real debate on how it's being spent?
Published 22/09/2016 | 02:30
Workers in Ireland are paying the higher 40pc rate of income tax before their salaries even reach the average industrial wage, a study by the Irish Tax Institute found this week.
Surprisingly, it also found that someone earning a salary of €55,000 per year in Ireland pays more tax than those in Sweden, Spain or Switzerland. And if you are earning €75,000 per year in salary, you pay €4,500 more than your counterpart in Britain. At €100,000 per year, the UK comparison shoots up to €12,500 more in tax here.
In fact, the report points out that in 2015 the top 1pc of income earners paid 19pc of all personal taxes while 12 months later this is estimated to be 22pc.
But what do these figures tell us? That we are a high tax country? The Irish Tax Institute wants to make a case that in Ireland people in middle and high incomes are paying enormous levels of tax which will inevitably be a deterrent to our competitiveness when it comes to attracting foreign direct investment or even convincing highly skilled Irish people to return home.
I live just eight minutes away from the border with the UK and presumably could be paying a lot less tax by moving just a few minutes up the road. So what chance do we have of attracting the right kind of talented people to come here with those tax rates?
One issue is whether those on lower incomes are paying enough given that around half a million lower-paid workers have been taken out of the income tax net entirely in recent years.
But perhaps the debate should be about where our taxes go, how they are spent and whether there is enough transparency and accountability in the system.
In Ireland enormous amounts of exchequer income simply go into a central financial pot out of which practically everything is paid.
This year we will spend about €51.3bn on current expenditure running the country. Social Protection will require about €19.4bn. Health will need about €13.5bn. Education spending will come in at €8.7bn.
The total public sector pay and pensions bill will come in at €18.4bn. Is this too much or too little? I have no idea. It depends on the quality of services we get in return.
Equally, the tax rates being paid by workers cannot be judged to be too high or too low, if we cannot see where our money is going. The best way to do that is have more allocated taxation.
When it comes to managing your household budget, or even that of a small company, it makes sense to set aside certain earnings for specific things.
It means you know where you stand at all times. Take our public sector pensions for example. The vast majority of them are paid out on a pay-as-you-go basis by the Exchequer. We never seem to know exactly where we stand at any one point in time in relation to how much money we are spending and how much we will need to fund them in the future.
The National Pension Reserve Fund was aimed at providing some of that certainty but it had to be raided in the crash.
For example, the pension bill this year for the HSE regions of Dublin North East and Dublin Mid-Leinster will be a combined €105m. But the pension expenditure for HSE West Region is pencilled in for €208m.
The eastern regions have a much bigger population and presumably the massive figure for the West is down to a sizeable cull in numbers over the years, which has resulted in a lot of former staff collecting HSE pensions.
Our politicians and civil servants have a tendency to grab so many pots of money and throw them into central funds. This makes it less transparent but also makes it harder to sell tax increases to the working public who don't know if they are getting value for money or being ripped off.
For example, when we set up the National Lottery, its income was specifically aimed at funding good social causes. Then it was grabbed into central funds. The good causes continued to be funded but out of a departmental budget that was part-financed by Lottery sales tickets.
It facilitated greater political interference and less transparency.
The social insurance fund, into which people pay PRSI and in return get social protection and health benefits, was raided by Charlie McCreevy to the tune of €600m in 2002, because it was in surplus.
Within six years it was in deficit and the deficit rocketed to €2.75bn by 2010. It is only expected to return to surplus this year.
The Local Property Tax, controversially introduced by Phil Hogan, was supposed to fund local authorities. Yet 20pc of the funding goes into the main local government central fund so it isn't obvious where it is going.
Water charges, despised by many, were a specific levy or charge (like a tax) which would go specifically towards funding water infrastructure. Despite the shambles of setting up the utility, it seemed a reasonable proposition. They are now about to be scrapped because we don't want them.
Motor taxation and VRT receipts are supposed to go to local authorities to improve the roads. And they do but somewhat indirectly. The money is paid into a local government central fund. In any one county where people live, they cannot see or assess how that county is using its motor tax revenue for road users in their area.
Ironically, because of greater sales of fuel efficient cars, which is part of a wider EU environmental objective, new car sales are up 20pc but the motor tax take is down €80m. That leaves less money available for roads.
The €2bn per year collected from diesel and petrol sales goes into central Exchequer funding. So too does the insurance levy.
It is as if we don't want to ring-fence specific taxes for specific purposes because it would make shortfalls in delivery of services far too obvious.
In areas where we do have specific charges, such as for water, many people do not want to pay them.
The television licence fee is a compulsory charge which is used for very specific purposes - namely broadcasting. Yet we have a huge level of evasion.
The Irish Tax Institute report surprises us by pointing out that we pay higher levels of income tax on some salaries than equivalents in Sweden or Switzerland.
These are countries which have very strong reputations for quality of public services.
But in Switzerland for example, people pay separate income taxes to the national Exchequer, to the region or canton and further taxes to the local municipality or commune.
There are 2,300 communes in Switzerland with different tax raising powers. We abolished our urban district councils to consolidate savings in county councils, which don't have tax raising powers anyway.
The Swiss system might be administratively heavy, but it allows people to see exactly where their taxes are going. They can see what their money is paying for in their local area.
In Ireland we have very few truly local breakdowns of income and expenditure. People might not object to paying relatively high levels of taxation if they could see the results or simply be provided with information on where their taxes are being allocated.
The old age pension for example will cost €6.9bn this year. Who would begrudge our senior citizens that money? But wouldn't it be easier to have a meaningful discussion about raising the old age pension if people knew that Xpc of their taxes were going towards funding it and they knew how much it will cost into the future?
Real discussions about the structure of our tax system are required. But it isn't just about who is paying how much. It also needs to be about greater information and accountability in how it is being spent.